Asia Markets

Shenzhen-HK trading link debut likely stalled on capital outflow worries: Strategist

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Foreigners may have to wait a few more weeks before accessing China's large array of private-sector companies listed on the Shenzhen Stock Exchange, as concerns mount over capital outflows on the back of a weaker yuan. an investment strategist told CNBC.

While no specific dates were set for the launch of the so-called Shenzhen-Hong Kong Stock Connect, some investors were betting that Monday would mark the official open of access to the exchange notable for potential access to tech and other new economy companies in China.

"Right now, I think people are definitely worried about the capital flight," Kevin Leung, director of global investment strategy at Haitong International Securities, told CNBC's "Squawk Box" on Monday. "That's one of the reasons why the Stock Connect didn't really happen today."

Onshore has fallen nearly 2 percent against the dollar since the Nov. 8 U.S. election, as the victory by president-elect Donald Trump spurred a broad rally for the greenback against most currencies on expectations of fiscal stimulus and tax cuts.

Though a weaker yuan theoretically helps China by making exports cheaper, the benefits were overshadowed by concerns over capital outflows. A weaker yuan also reduces purchasing power of consumers in the global market by making goods and services in other currencies more expensive.

Jackson Wong, associate director at Huarong International Securities, told CNBC'S "Street Signs," that there were probable concerns that opening up another channel that allowed Chinese investors to buy foreign assets could see them "go all out," and further exacerbate capital outflows and push the yuan lower.

On Friday, the chief executive of market operator Hong Kong Exchanges and Clearing, Charles Li, told reporters while both sides were ready for the launch, they preferred it to be done on a Monday and at a time when there were no market-moving events on the cards, such as the upcoming MSCI Equity Indexes review on Nov. 30.

Chinese media speculated the so-called Stock Connect could launch either on Dec. 5 or Dec. 12, but the Hong Kong Exchanges and Clearing told CNBC to wait for an to wait for an official announcement from Hong Kong and mainland Chinese regulators.

Analysts told CNBC Dec. 12 was the likely date as further delays would push the launch into the Christmas holiday period and add to existing investor concerns. "A lot of investors are already disappointed because they are worried if there's something wrong with this scheme or anything that's hindering this (from being) rolled out," said Wong.

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The new Stock Connect will be similar to the existing Shanghai-Hong Kong Stock Connect, which was launched in late 2014. Investors in Hong Kong will be able to buy Shenzhen-listed stocks, including many prominent technology and consumer names in the mainland. In return, Chinese investors will have access to shares listed in Hong Kong.

Leung said Shenzhen stocks set to gain include those listed in the military sector, which do not have peers in Hong Kong, the white wine - or baijiu - sector, which was consumer-facing, had renowned brand names and were reasonably valued. The technology, media, telecommunications and pharmaceutical sectors were also at an advantage, as well as publicly-listed companies that were involved in China's ongoing reform and restructuring of the large, state-owned enterprises.

In Hong Kong, Leung said, "Initially the interest would still be in the large caps, but then, eventually, there will be more interest in the small caps as well ... (because) you are welcoming a lot of retail investors from China." He pointed out stocks particularly on the Hang Seng Composite SmallCap index could benefit.

Some analysts, however, believe the Shenzhen-Hong Kong Stock Connect's eventual launch could be underwhelming.

Fraser Howie, an independent analyst, told CNBC's "The Rundown" many investors already had access to China through the Qualified Foreign Institutional Investor scheme that allows a limited scope of cross-border securities products. Investors, Howie added, would also likely be skeptical of Shenzhen-listed stocks because of their relatively high valuation.

"The trouble is even after the collapse of last year, this year, you're still looking at 30, 40, 50 times earnings," he said, referring to last summer's Chinese market crash. "For a lot of investors, it looks very rich, it looks highly speculative."

— Jonathan Stayton and Joanne Wong contributed to this report.

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